Having zero credit history or damaged credit - which translates into a low beacon score - not only makes it hard to get a mortgage, it can make it difficult to get a credit card, something that is a key component of building (or re-building) a credit score.
This common problem helped spur the idea behind the secured MasterCard program from Peoples Trust Financial, a subsidiary of the mortgage lender Peoples Trust Company. The card gives people with credit problems and discharged bankrupts, as well as those who have never had credit or loans or no credit history in Canada (i.e. new immigrants or international students), a way to establish credit or bring their credit scores up from previously low levels.
"The program allows people to rebuild their credit because once we work with these individuals on a secured basis, we're able to give them a whole fresh start," says David Soric, administration manager for the Peoples Trust Secured MasterCard, adding that most of the referrals to the program come from mortgage brokers.
The rebuilding process
Once a client applies and is approved for a Peoples Trust Secured MasterCard - which is available in all provinces, including Quebec - they put down a security deposit between $500 and $25,000, which is then transferred into a GIC to earn annual interest. The credit limit for the card is 100 per cent of the security deposit.
Peoples Trust reports a client's payment history to both Equifax and TransUnion on a monthly basis. Soric says clients who stay on top of their card payments and consequently build up their credit rating can go back to a major bank, generally in about 12 to 18 months, to apply for an unsecured credit card.
"It's been very popular," Soric says of the program, which the company launched close to two years ago. "It's not only good for customers who are able to re-establish credit, but we're able to help these individuals so down the line they can look at getting a mortgage or better mortgage rates. That's one of the key things."
Mortgage broker referrals
Because a person's credit is scrutinized during the mortgage application process, many clients in the program are referred by mortgage brokers. This paved the way for the broker referral program where brokers earn $35 per approved application for a secured MasterCard through Peoples Trust. If a broker refers more than 50 people in a month, they'll make $40 per referral.
"We can supply the applications and make them available to their clients and all applications
are virtually guaranteed approval," says Soric, adding that brokers can also set up a feature on
their websites where a client can click to go to an online application for the credit card. Once a client has improved their credit score through the Secured MasterCard, Soric says they can go back to the mortgage broker who referred them to the program to either get a better interest rate upon renewing their mortgage or get a new mortgage (which may have been previously unattainable for them).
"In a way, the broker is becoming like a consultant, directing their client in the proper direction to get a mortgage or a better rate," says Soric. "It's a goodwill gesture that will enhance the relationship between the mortgage broker and his client and will likely result in future business."